The short answer
Property tax in Mexico is strikingly low. On a $400,000 home in Mexico City — which at that price means Polanco, Condesa or Lomas — the annual predial commonly falls somewhere around $300 to $400. The same property in much of the United States would attract several thousand dollars a year.
This figure is attractive for foreign buyers, and rightly so. The trouble is what tends to be inferred from it. A tax bill that small suggests a country where holding property is cheap, and the costs that follow do not behave that way.
A bank trust on a coastal property will often cost two or three times the property tax, every year, for as long as you own it. Building maintenance charges are usually the largest annual line by some distance. And if the property is let, an owner residing abroad is taxed under Article 158 of the income tax law at 25% of gross rent with no deductions — not 25% of profit.
None of this is concealed. It simply does not come up while someone is showing you a terrace at sunset.
Predial: the number that surprises everyone
Predial is a municipal tax, set and collected by each municipality, with no national rate. It is charged on the cadastral value — the value the municipality assigns — rather than on what you paid.
Two things keep the result low. Rates are modest: Mexico City applies a progressive table of sixteen bands, a fixed amount plus a percentage of the excess, running from roughly 0.1% to 0.6%. And the base is small, because cadastral value commonly sits at 30% to 70% of market value.
Together: a Mexico City property with a cadastral value of MXN 2.5 million attracts roughly MXN 4,100 a year — about 0.16% of that cadastral value, and nearer 0.08% of what the property would sell for.
Paying early is worth more than the sums suggest: Mexico City discounts around 10% for payment in January, Guadalajara 7%, Monterrey and Puebla 6%. Many municipalities also reduce the charge for pensioners and older owners.
One consequence deserves attention. Unpaid predial attaches to the property, and a notario will not formalise a sale while it is outstanding — so arrears block a future sale until cleared, and become the new owner's problem if they are missed at purchase. It is one of several debts that follow the property rather than the person, which is why they belong on the pre-purchase checklist rather than the post-purchase one, as we set out in the due diligence sequence.
The costs that actually decide affordability
Here is the annual picture for a foreign owner, roughly in order of how much it matters.
Two of these break projections more often than the rest. The trust fee — because it is permanent and applies to exactly the coastal properties most foreign buyers want — and the maintenance charge, because buyers tend to price it from the monthly figure they are quoted without asking the question behind it.
That question is whether the building's reserve fund is adequate for the capital work ahead of it. A low monthly charge in an ageing building is not a saving — it is a deferred bill, and it arrives as a special assessment divided among the owners, including whoever bought most recently.
If you intend to let it: the 25% that is not on profit
This is the most consequential item here, and it is routinely absent from the rental yield projections foreign buyers are shown.
Under Article 158 of the Ley del Impuesto Sobre la Renta, a person residing abroad who receives rent from a property in Mexico is taxed at 25% of the gross amount received, with no deduction whatsoever. Not 25% of the profit — 25% of every peso of rent, before maintenance charges, before the trust fee, before property tax, before management commission, before repairs.
Worked example — illustrative figures
Annual rent received$20,000
Running costs — maintenance, trust fee, predial, management, repairs− $8,000
Profit before tax$12,000
Tax at 25% — charged on the $20,000, not the $12,000− $5,000
What the owner keeps$7,000
The effective rate on actual profit is not 25%. It is closer to 42%.
Where the tenant is a Mexican company or a permanent establishment, they must withhold and remit it. Where they are not, the owner declares and pays directly.
An alternative exists that often costs less. The law permits an election to be taxed at 35% on the net gain — income after deductions — instead of 25% on the gross. For a property carrying meaningful running costs, 35% of net is frequently the smaller figure. In the example above it would be $4,200 rather than $5,000.
For residents of the United States there is a further route. Under the double taxation treaty with Mexico, a U.S. resident may file a notice with the tax authority electing to be taxed on a net basis, which relieves the payer of the 25% withholding. The election has to be made; it is not automatic.
What follows from that is a matter of timing. How heavily rental income is taxed depends on decisions taken at the point of purchase, and those decisions are difficult to revisit afterwards.
Working out whether the numbers hold? Amanah prepares the full cost picture before a client commits — acquisition costs and the annual cost of holding the property, including trust fees, maintenance charges, tax position and the reserve-fund exposure of the building. We take no commission from sellers, so we have no interest in the number being flattering.
How Buyer Representation WorksWhat moves the number most
- Whether the property sits in the restricted zone. Coastal and border property requires a bank trust, and that fee recurs annually for as long as you own it. Inland cities — Mexico City, Mérida, Guadalajara, Querétaro, San Miguel — do not.
- The age and condition of the building. This governs both the maintenance charge and the likelihood of a special assessment — the difference between a predictable annual figure and an unpredictable one.
- Whether you let it. Letting turns a modest holding cost into a taxed activity with an accounting obligation attached.
- How often you are there. An empty property still incurs maintenance charges, insurance, taxes and the trust fee, and usually needs someone locally to look after it.
What to establish before you buy
All of these are obtainable before commitment and none is expensive:
- The current predial assessment, and whether anything is outstanding.
- The building's maintenance charge in writing from the administrator, together with the reserve fund balance and recent assembly minutes.
- For restricted-zone property: written fee schedules from more than one trustee bank. They are not identical, and the buyer chooses the trustee.
- If you intend to let: how the income will be taxed under the structure you are buying through, and whether a net-basis election is open to you.
Buyers budget carefully for the purchase and rarely for the holding. The purchase happens once. The holding cost arrives every year, whether you are in the country or not, and it is the figure that decides whether the plan works.